Among recent enforcement actions, the SEC has filed fraud charges against four former officers of Wilmington Trust for knowingly understating past-due loans during the financial crisis.
In addition, Merrill Lynch was the target of separate FINRA actions and First New York Securities was hit with a heavy fine on insider trading failures.
Four Former Wilmington Trust Officers Charged by SEC With Fraud
The SEC has charged four former officers of Wilmington Trust with fraud for intentionally understating past due bank loans during the financial crisis. The former Delaware-based bank holding company was acquired by M&T Bank in May of 2011, and in September of 2014 it paid $18.5 million to settle related charges from the SEC for improper accounting and disclosure fraud.
According to the agency, the four—David Gibson, former CFO; Robert Harra, former COO; Kevyn Rakowski, former controller; and William North, former chief credit officer—put together a scheme to hide the impact of declines in the real estate market on the bank's portfolio of commercial real estate loans. They kept hundreds of millions of dollars of past-due real estate loans out of the financial reports filed by Wilmington Trust in 2009 and 2010.
Gibson, Rakowski, and North omitted approximately $351 million of matured loans 90 days or more past due from the bank's disclosures in Q3 2009; as a result, only $38.7 million of such loans were disclosed. In Q4 2009, the four left out approximately $330.2 million of these loans, with the bank's annual report disclosing only $30.6 million of such loans.
Gobson, Rakowski and North also got together to continue misreporting in the first half of 2010, while Gibson also materially understated the amount of nonaccruing loans in Wilmington Trust's portfolio in Q3 2009 and the bank's loan loss provision and allowance for loan losses in Q4 2009.
The SEC is seeking to have all four return allegedly ill-gotten gains with interest and pay civil monetary penalties, and to have Gibson and Harra barred from serving as corporate officers or directors. In a related action, the U.S. Attorney's Office for the District of Delaware has announced criminal charges against Rakowski and North.
FINRA Censures Merrill Lynch and Clearing, Fines Both
Merrill Lynch, Pierce, Fenner & Smith Inc. and Merrill Lynch Professional Clearing Corp. were both censured by FINRA and fined in separate actions.
Merrill Lynch, Pierce, Fenner & Smith was censured and fined $100,000 after FINRA found that it failed to send required regulatory disclosures and notices in connection with the opening of approximately 12,989 firm accounts. Separately, it was censured and fined $115,000 on FINRA findings that for settlement dates between September 15, 2010, and February 29, 2012, the firm failed to report short interest positions; during the same period, underreported its short interest positions; and failed to report one position at all on June 29, 2012.
In the first instance, the firm found that its new account-opening platform failed to send packages with required business continuity plan disclosures, privacy pledges, payment for order flow disclosures, and affiliate marketing notices, to customers opening new college savings, education savings and individual investor accounts.
